Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
Question
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Chapter 12A, Problem 31P
To determine

(a)

The percentage of family’s expenses that fit in their needs category.

Expert Solution
Check Mark

Answer to Problem 31P

The percentage of family’s expenses that fit in their needs category is 4.1525%.

Explanation of Solution

Given:

The after tax income of household is $120,000.

The monthly expenses of the family are as shown below.

Category Monthly expenses
House payment $2100
Gasoline $200
Phone/internet/TV $250
Eating out $800
Home maintenance $333
Insurance and taxes $800
Groceries $550
Utilities $250
Car payment $750
Saving $900
Vacation & entertainment $800

Table (1)

Calculations:

The family’s expenses which fit in needs category are house payment, gasoline, home maintenance, car payment, insurance and taxes, groceries and utilities.

Calculate the percentage of family’s expenses that fit in needs category.

Need%=[ $2100+$200+$333+$750+$800 +$550+$250]$120000×100=$4983$120000×100=4.1525%.

Conclusion:

Thus, the percentage of family’s expenses that fit in their needs category is 4.1525%.

To determine

(b)

The percentage of family’s expenses that fit in the saving category.

Expert Solution
Check Mark

Answer to Problem 31P

The percentage of family’s expenses that fit in the saving category is 0.75%.

Explanation of Solution

Calculations:

The family’s expense which fit in saving category is Saving.

Calculate the percentage of family’s expenses fitting in saving category.

Saving%=$900$120000×100=0.75%.

Conclusion:

Thus, the percentage of family’s expenses that fit in the saving category is 0.75%.

To determine

(c)

The percentage of family’s expenses that fit in the wants category.

Expert Solution
Check Mark

Answer to Problem 31P

The percentage of family’s expenses that fit in the wants category is 1.5417%.

Explanation of Solution

Calculations:

The family’s expense which fit in wants category is Eating out, Phone/internet/TV, Vacation and entertainment.

Calculate the percentage of family’s expenses fitting in wants category.

Wants%=($800+$250+$800)$120000×100=$1850$120000×100=1.5417%.

Conclusion:

Thus, the percentage of family’s expenses that fit in the wants category is 1.5417%.

To determine

(d)

The annual property tax paid as a part of house payment.

Expert Solution
Check Mark

Answer to Problem 31P

The annual property tax paid as a part of house payment is $6100.

Explanation of Solution

Given:

The amount paid for fire insurance is $1600 per year.

The mortgage payment is $17500.

Concept used:

Write the expression for mortgage payment.

M=H(FI+PT) ....... (I)

Here, the mortgage payment is M, house payment is H, fire insurance payment is FI and annual property tax is PT.

Calculations:

Calculate the annual property tax.

Substitute ($2100×12) for H, $1600 for FI and $17500 for M in Equation (I).

$17500=($2100×12)($1600+PT)PT=$25200$1600$17500PT=$6100.

Conclusion:

Thus, the annual property tax paid as a part of house payment is $6100.

To determine

(e)

The before tax income of the family.

Expert Solution
Check Mark

Answer to Problem 31P

The before tax income of the family is $142200.

Explanation of Solution

Given:

The family pays 18.5% of their total income in taxes.

Concept used:

Write the expression for before tax income.

BTI=ATI+T ....... (II)

Here, after tax income is ATI and tax paid is T.

Calculations:

Calculate the total tax paid.

T=18.5%×$120000=18.5100×$120000=$22200

Calculate the before tax income.

Substitute $120000 for ATI and $22200 for T in Equation (II).

BTI=$120000+$22200=$142200.

Conclusion:

Thus, the before tax income of the family is $142200.

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